Folder redirection is a feature shipped first in Windows 2000 by Microsoft. The feature allows redirecting portions of a user's profile to network shares and thus reduce the profile size.
The folder redirection feature is configured through group policies. The settings are processed by the fdeploy.dll client side extension (CSE).
See http://technet.microsoft.com/en-us/library/cc737649(WS.10).aspx for more details.